Cartel

What It Means

A cartel is an association of producers that adopts mutually beneficial business practices in order to maximize the profits of all members of the group. Cartels are composed of companies from the same industry, such as the oil or diamond industries, that seek to set specific restraints on the production and sale of their particular product. When forming a cartel, businesses establish fixed prices for their goods, set quotas on production, and regulate the market share (percentage of business deriving from the sales of the product) held by member companies. In agreeing to abide by a set of standard business practices, companies in cartels are able to reduce competition for their product.

In certain respects a cartel resembles a monopoly. A monopoly exists when a single company or business entity controls an entire market (all the selling activity) for a particular product or service. Like cartels, monopolies have little to no competition for their products, and therefore have the power to determine prices, production, and distribution of their products. Unlike monopolies, however, cartels always involve more than one company, which retain a great deal of autonomy in the management and operation of their businesses. Some companies belonging to international cartels may also have a monopoly within their own country.

When Did It Begin

One of the first modern cartels, a group of salt-mining companies known as the Neckar Salt Union, was formed in 1828 in the cities of Württemberg and Baden (in what is now Germany). In 1871, following the unification of the various independent German states into a single nation, several new cartels began to emerge. These powerful cartels were predominantly in the natural resource extraction industries, notably oil and coal, and were the driving force behind German industrialization in the late nineteenth century. German cartels later oversaw the manufacture of military supplies during World War I (1914–18).

German corporations also played a pivotal role in the development of the international cartel in the twentieth century, notably in the steel, chemical, and fertilizer industries. Although forbidden to do so by U.S. law, which prohibited participation in cartels on the grounds that their business practices were anticompetitive, a number of American companies worked closely with German cartels during the 1930s. After it was revealed that German cartels had played a critical role in the Nazi military effort during World War II (1939–45), the United States and Great Britain imposed strict bans on cartel activities in postwar West Germany.

More Detailed Information

Historically there have been two forms of cartel, domestic (operating within a single country) and international. One of the most powerful domestic cartels of the twentieth century was Interessen-Gemeinschaft Farbenindustrie, also known as IG Farben. Formed in 1925, IG Farben consisted of several large chemical and pharmaceutical companies that joined together in order to manufacture and distribute colored dyes. The cartel soon became involved in producing chemicals, and by the late 1920s it had secured a near-total monopoly on chemical production in Germany. During World War II this cartel worked closely with the Nazi government to seize control of chemical plants in countries occupied by Germany, which IG Farben then operated as their own. IG Farben was infamous for the production of Zyklon B, a poison used in the gas chambers at Nazi concentration camps during World War II. After the German defeat in the war, a number of executives from IG Farben were tried and convicted for war crimes.

The best-known and most powerful international cartel in modern history is the Organization of Petroleum Exporting Countries, or OPEC. OPEC was formed in 1960 by Saudi Arabia, Venezuela, Kuwait, Iran, and Iraq as a means of organizing and regulating the production and price of oil. In the ensuing years several other countries joined OPEC, and by the early twenty-first century it consisted of 11 member states, which accounted for 40 percent of the world’s oil production.

OPEC’s power to control the global economy became apparent in 1973 during the Yom Kippur War, when Syria and Egypt invaded Israel. In retaliation for American and European support of Israel during the conflict, the Arab nations of OPEC conspired to drive up oil prices, imposing an embargo (prohibition) on oil shipments to the United States and doubling the prices of oil sold to Europe. Between October 1973 and January 1974 the price of oil rose from roughly $3 a barrel to $11.75 a barrel. At the same time, the wealth of the OPEC nations vastly increased.

Recent Trends

Cartels are not necessarily limited to legal business enterprises. In the late twentieth century the international drug trade was organized by powerful cartels, many of them located in South America and Mexico. Two of the most infamous drug cartels, both headquartered in Colombia, were the Medellín and Cali cartels. Run by Pablo Escobar (1949–93), the Medellín cartel dominated the cocaine-smuggling business in the 1970s and 1980s, earning more than $60 million a month at its peak. As U.S. and Colombian law-enforcement efforts disrupted the activities of the Medellín cartel during the late 1980s and early 1990s, the rival Cali cartel rose up in its place and soon gained control of 80 percent of all cocaine smuggled illegally into the United States. Law-enforcement officials captured the leaders of the Cali cartel in the early twenty-first century. By this time, however, the large cartels had made way for more fragmented “baby cartels,” which were in many ways more dangerous and difficult to prosecute. In 2004 experts estimated that there were 300 baby cartels in Colombia alone.

CARTEL

A cartel is a group of independently owned businesses that attempts to regulate pricing, production, and distribution within an industry. To accomplish this, cartel members agree to act together rather than compete against each other. As a result the cartel does not allow market forces to determine prices; instead the cartel decides how much to charge, how much to produce, and how to divide the market. The term cartel is usually applied to agreements that regulate business in the international marketplace. (Collaborative arrangements on a national level are called trusts.)

Cartels originated in Germany and date back to the 1870s. In the early years of the twentieth century the German government encouraged companies to join cartels as a way to increase Germany's export trade. During that same period the aluminum industry was entirely controlled by a cartel made up of four companies from the United States, France, Germany, and Great Britain.

After World War I (1914–1918) cartels flourished, and by the start of World War II (1939–1945) there were an estimated 200 international cartels. These cartels controlled 30 percent of worldwide trade in industries such as rubber, steel, chemicals, and tin. More recently, oil-exporting nations formed cartels in the 1970s to establish market prices for crude oil. These oil cartels, operating under the auspices of the Organization of Petroleum Exporting Countries (OPEC), initially enjoyed success in controlling the world's oil supply and prices. However as oil prices went up demand for oil decreased; by the 1980s OPEC's influence eroded. While antitrust laws make collusive agreements illegal in the United States, national cartels are common in Japan, where businesses operate under a system of managed competition.

See also: OPEC Oil Embargo

CARTEL

A combination of producers of any product joined together to control its production, sale, and price, so as to obtain amonopolyand restrict competition in any particular industry or commodity. Cartels exist primarily in Europe, being illegal in the United States underantitrust laws. Also, an association by agreement of companies or sections of companies having common interests, designed to prevent extreme orunfair competitionand allocate markets, and to promote the interchange of knowledge resulting from scientific and technical research, exchange of patent rights, and standardization of products.

In war, an agreement between two hostile powers for the delivery of prisoners or deserters, or authorizing certain nonhostile intercourse between each other that would otherwise be prevented by the state of war, for example, agreements between enemies for intercommunication by post, telegraph, telephone, or railway.

Although illegal in the United States, foreign cartels influence prices within the United States on imported and smuggled goods that they control. The United States has sued the De Beers diamond cartel several times, and works to stop the flow of illegal narcotics, whose production and distribution are largely controlled by drug cartels.

car·tel / kärˈtel/ • n. an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition: the Colombian drug cartels. ∎  chiefly hist. a coalition or cooperative arrangement between political parties intended to promote a mutual interest.

Cartel woof! 1990(R)

O'Keeffe, “B” actor extraordinaire, plays the wrong man to pick on in this rancid dope opera. Hounded by drug lord Stroud and framed for murder, pilot O'Keeffe decides the syndicate has gone too doggone far when they kill his sister. Exploitive and otherwise very bad. 106m/C VHS, DVD . Miles O'Keeffe, Don Stroud, Crystal Carson, William (Bill) Smith; D: John Stewart; W: Moshe Hadar; C: Thomas Callaway; M: Rick Krizman.